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August 26, 2016

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US sees new orders for core capital goods increase

NEW orders for US manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up, offering a tentative sign that a business spending downturn was starting to ease.

The economy also got a boost from another report yesterday showing an unexpected drop in the number of Americans filing for jobless benefits last week.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.6 percent last month, the largest gain since January.

These so-called core capital goods orders added 0.5 percent in June.

July’s rise marked the first back-to-back gain since January 2015.

Economists polled by Reuters had forecast core capital goods orders advancing only 0.3 percent last month.

Prices for US Treasuries fell after the data, while US stock futures pared losses. The dollar edged up against the euro and yen.

Business spending has contracted since the fourth quarter of 2015, in part as companies slashed capital spending budgets in response to lower oil prices.

The increase in core capital goods orders follows a rise in oil and gas drilling activity in recent months.

Still, business investment is likely to be tepid in the third quarter amid uncertainty over the global economy after Britain’s decision to leave the European Union and ahead of the November 8 US presidential election, economists say.

Heavy machinery maker Caterpillar last month cut its 2016 forecast, citing sluggish demand in mining and other industries. Weak business spending contributed to holding down economic growth to 1 percent in the first half of 2016.


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